SolvedTSEM3474 | Trust income and gains: vulnerable beneficiaries: claims to special tax treatment: computing the amount of relief: income tax - basic example
From HM Revenue & Customs · Trusts, Settlements and Estates Manual
A trust has arisen in England as a result of an intestacy. There is one current beneficiary, a UK resident minor who is a vulnerable person. Because of the right to accumulate the trustees are liable at the special trust rates. A valid vulnerable beneficiary election is in force.
Example 2024-2025
The example is when the income is received after 6 April 2024 when the standard rate band is no longer applicable.
The trustees receive the following income in 2024-25:
| Income | Amount |
|---|---|
| Rent | £20,000 |
| Bank Interest | £5,000 |
| UK dividends | £10,000 |
TQTI (the trustees tax liability before making a claim for special treatment)
| Tax rates | Non-savings income | Savings | Dividend | Total |
|---|---|---|---|---|
| Income | £20,000 | £5,000 | £10,000 | - |
| Tax at trust rate 45% | £20,000 | £5,000 | - | - |
| Tax at Trust dividend rate 39.35% | - | - | £10,000 | - |
| Tax chargeable | £9,000 | £2,250.00 | £3,935 | £15,185 |
The vulnerable person has no personal income or gains in the year, and so the amount of TLV2 is nil.
TLV1 (the amount of additional tax that the vulnerable person would pay if the qualifying trusts income arose directly to them) is:
| Income | Non savings income | Savings | Dividend | Total |
|---|---|---|---|---|
| Income-actual | - | - | - | - |
| Income treated as arising to vulnerable beneficiary | £20,000 | £5,000 | £10,000 | - |
| less personal allowance | £12,570 | - | - | - |
| Savings chargeable after £1,000 allowance (20%) | - | £4,000 | - | - |
| Tax chargeable | - | £800.00 | - | £800.00 |
| Chargeable at dividend rate after £500 dividend allowance (8.75%) | - | - | £9,500 | - |
| Tax chargeable | - | - | £831.25 | £831.25 |
| Chargeable at lower rate (20%) | £7,430 | - | - | - |
| Tax chargeable | £1,486.00 | - | - | £1,486.00 |
| TLV1 | - | - | - | £3,117.25 |
| less TLV2 | - | - | - | £000.00 |
| VQTI | - | - | - | £3,117.25 |
The reduction that the trustees can claim is TQTI - VQTI (£15,185 - £3117.25) = £12,067.75.
Their final liability is therefore:
| Tax due | Total |
|---|---|
| Tax due | £15,185 |
| Less reduction for special tax treatment | £12,067.75 |
| - | £3117.25 |
Example for 2019-2020 when standard rate band was applicable
The trustees receive the following income in 2019-20:
| Income | Amount |
|---|---|
| Rent | £20,000 |
| Bank interest | £5,000 |
| UK dividends | £10,000 |
TQTI (the trustees’ tax liability before making a claim for special tax treatment) is:
| Tax Rates | Non-savings | Savings | Dividend | Total |
|---|---|---|---|---|
| Income | £20,000 | £5,000 | £10,000 | - |
| Tax at standard rate 20% | £1,000 | - | - | - |
| Tax at Trust rate 45% | £19,000 | £5,000 | - | - |
| Tax at Trust dividend rate 38.1% | - | - | £10,000 | - |
| Tax chargeable | £8,750.00 | £2,250.00 | £3,810.00 | £14,810.00 |
The vulnerable person has no personal income or gains in the year and so the amount of TLV2 is nil.
TLV1 (the amount of additional tax that the vulnerable person would pay if the qualifying trusts income arose directly to them) is:
| Income | Non-savings | Savings | Dividend | Total |
|---|---|---|---|---|
| Income - actual | - | - | - | - |
| Income treated as arising to the vulnerable person | £20,000 | £5,000 | £10,000 | - |
| - | £20,000 | £5,000 | £10,000 | - |
| Less personal allowance | £12,500 | - | - | - |
| Savings chargeable after £1,000 allowance (20%) | - | £4,000 | - | - |
| Tax chargeable | - | £800.00 | - | £800.00 |
| Chargeable at dividend rate after £2,000 dividend allowance (7.5%) | - | - | £8,000 | - |
| Tax chargeable | - | - | £600.00 | £600.00 |
| Chargeable at lower rate (20%) | £7,500 | - | - | - |
| Tax chargeable | £1,500.00 | - | - | £1,500.00 |
| TLV1 | - | - | - | £2,900.00 |
| Less TLV2 | - | - | - | £0.00 |
| VQTI | - | - | - | £2,900.00 |
The reduction that the trustees can claim is TQTI - VQTI (£14,810 - £2,900) = £11,910. Their final liability is therefore:
| Tax Due | Total |
|---|---|
| Tax due | £14,810.00 |
| Less reduction for special tax treatment | £11,910.00 |
| - | £2,900.00 |
The trustees must also ensure that they have paid enough income tax to cover the deemed deduction of tax on the distribution to the beneficiary (see TSEM3490).